Tech Rumor of the Day: Nokia

In danger of losing its crown as the king of all phones, Nokia(NOK) is sharpening its two-pronged attack on the smartphone market with a cheap phone assault.

As part of the plan, Nokia introduced a low-priced version of its 5800 XpressMusic phone this week. With the terrifically catchy name of 5530 XpressMusic, the new 2.5G or EDGE-network compatible phone is expected to be available by the holidays and is likely to be offered for free in exchange for one- or two-year contracts.

The move toward less capable promotional freebies comes as the Finnish phone shop's flagship N97 $700 smartphone arrived in some reviewers' hands Wednesday. The cheap approach also helped fan rumors of a "mini" N97 that is in the works, presumably a low-end version of the feature-rich original.

Nokia is already late to the touchscreen craze. This tardiness helped Nokia lose vital ground in the surging smartphone market as more popular phones from Apple (AAPL), Research In Motion (RIMM) and now Palm (PALM) take off.

If Nokia has one advantage in this smartphone contest, it's the ability to make high-quality phones at competitively low costs due to its scale and the pricing pressure it exerts on its suppliers.

The 5530 is a good example of Nokia's ability to make a fancy phone with a few expensive features omitted. The 5530 has WiFi, a superior 2.9-inch touchscreen and 3.2-megapixel camera. However, it lacks, among other things, GPS and a faster 3G network chip.

Some analysts spy an opportunity at a time when $200 phones from Apple and Palm have dominated the smartphone headlines.